This paper derives formulae that show the marginal benefits of public inputs in second-best economies with tax distortions. The values of the change in the aggregate net output vector (and in some cases the change of profit income) evaluated at appropriate shadow prices show their marginal...

The Pigovian rule for the optimal public goods provision with distortionary taxation is given a new interpretation. It relates the Pigovian rule to project evaluation rules in terms of shadow prices. Our formula for the Pigovian rule is compared with that given by existing literature for cases...